[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
MARKUP OF COMMITTEE VIEWS AND ESTIMATES
ON THE SMALL BUSINESS ADMINISTRATION'S
FY 2015 BUDGET
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HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
MARCH 25, 2014
__________
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Small Business Committee Document Number 113-062
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HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
BLAINE LUETKEMEYER, Missouri
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
JAIME HERRERA BEUTLER, Washington
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
DAVID SCHWEIKERT, Arizona
KERRY BENTIVOLIO, Michigan
CHRIS COLLINS, New York
TOM RICE, South Carolina
NYDIA VELAAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
YVETTE CLARKE, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRAD SCHNEIDER, Illinois
RON BARBER, Arizona
ANN McLANE KUSTER, New Hampshire
PATRICK MURPHY, Florida
Lori Salley, Staff Director
Paul Sass Deputy Staff Director
Barry Pineles, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Sam Graves.................................................. 1
Hon. Nydia Velaazquez............................................ 2
APPENDIX
Additional Material for the Record:
Views and Estimates of the Committee on Small Business on
Matters to be set forth in the Concurrent Resolution on the
Budget for Fiscal Year 2015................................ 4
BUSINESS MEETING TO CONSIDER
COMMITTEE VIEWS AND ESTIMATES ON THE SMALL BUSINESS ADMINISTRATION'S
FISCAL YEAR 2015 BUDGET REQUEST
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TUESDAY, MARCH 25, 2014
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 11:02 p.m., in Room
2360, Rayburn House Office Building, Hon. Sam Graves [chairman
of the Committee] presiding.
Present: Representatives Graves, Coffman, Mulvaney, Tipton,
Herrera Beutler, Hanna, Schweikert, Bentivolio, Collins,
Velaazquez, Schrader, Payne, Schneider, and Barber.
Chairman Graves. Good afternoon. We will call the Committee
on Small Business markup to order. Today we are undertaking our
responsibility to provide views and estimates on the Small
Business Administration's budget for Fiscal Year 2015. Due to
the President's failure to nominate an Administrator in a
timely fashion so that the individual could be confirmed by the
Senate, the Committee has not had the opportunity at this point
to hear from this sufficiently senior superior SBA official on
the rationale behind the budget request.
The views and estimates before us today represents a
balanced approach of eliminating unnecessary funds from the
SBA's budget while keeping core programs at the Agency intact.
The views and estimates letter calls for a reduction in
spending and reallocating a small portion of those savings to
other areas that are going to improve agency oversight and
promote greater opportunity in the federal procurement
marketplace for small businesses.
During the past 2 years, Congress enacted a number of
changes to the government contracting programs that is overseen
by the SBA. These changes require the SBA to take a dozen
separate actions to implement the changes mandated by Congress,
and to date, not a single one of those changes has been made,
and some are more than a year behind schedule. In fact, the
SBA's budget justification document makes almost no mention of
these changes or any effort by the agency to implement them.
While the SBA is ignoring mandates from Congress, it has
the gall to request $39 million to continue entrepreneurial
outreach initiatives of its own creation. To make matters
worse, these initiatives duplicate already existing agency
programs and none of these SBA-created programs have proven
track records of providing assistance to small business owners.
By necessity, the budgets require hard choices. To the
extent that the SBA Fiscal Year 2015 budget request makes hard
choices, they ultimately make them in the wrong places. The
views and estimates letter is the corrective to those misguided
choices. And if implemented, the views expressed in the letter
to the Committee on the Budget will: improve recoveries on
defaulted SBA-guaranteed loans; it is going to improve the pace
of improvements to the SBA's loan management accounting
systems; increase the number of SBA personnel devoted to
assisting small businesses obtain federal contracts and
subcontracts; and strengthen the Inspector General's effort to
uncover waste, fraud, and abuse at the agency.
It will also reduce the SBA's overall budget by more than
$50 million without harming the agency's capacity to serve the
generator of the most jobs in this country--that is America's
small businesses.
Now, I recognize Ranking Member Velaazquez for her opening
statement.
Ms. Velaazquez. Thank you, Mr. Chairman. The SBA continues
to be an important agency for spreading economic activity.
Through its access to capital, procurement and entrepreneurial
development programs, the agency assists hundreds of thousands
of entrepreneurs each year. The SBA's annual budget submission
gives this committee the opportunity to assist the agency's
priorities and whether it is carrying out its statutory mission
appropriately.
The SBA's near-term blueprint for accomplishing its mandate
is its fiscal year 2015 budget request of $710 million. This
funding will enable the agency to continue to provide loans,
contracts, and training to small businesses across the country.
In this capacity, the SBA truly plays a vital role
strengthening our economy and providing job creation.
While SBA's fiscal year 2015 aggregate budget level is
reasonable, I have concerns with its allocation. Similar to
prior years' budgets, the SBA continued to support initiatives
that lack a specific statutory authorization. This includes
spending $39 million across several programs, such as
Entrepreneurship Education, Boots to Business, Growth
Accelerators, Regional Innovation Clusters, and the Business
USA Web site. Other similar activities are undertaken in the
agency's financing programs. Simply put, this practice is
wasteful and should not be allowed to continue. And on this
point, we enthusiastically concur with the chairman.
These private initiatives often lack appropriate safeguards
and guidelines as well as agency oversight, and the absence of
performance benchmarks makes it nearly impossible to understand
what these initiatives are accomplishing. By creating new
initiatives, the SBA is squandering its limited resources.
Instead, it should be relying on time-tested programs for a
fraction of the cost.
While we agree with the majority on this important point,
there are a couple of areas that we disagree on. Proposing to
transfer the Veterans Business Outreach Center program to the
Department of Veterans Affairs is unnecessary. SBA has
experience in funding various assistance centers serving
different demographics and the Veterans Business Outreach
Center program can benefit from this knowledge. And just last
month, this committee passed legislation transferring a portion
of the VA's small business program to the SBA. Moving the VBOC
from the SBA to the VA will undermine this work and create
confusion.
On this, I believe that we should speak with one voice and
continue to stress that the SBA, while not perfect, is the best
agency to serve small businesses.
In addition, while the Majority talks about its concerns
that the SBA is too concentrated in Washington, D.C., it fails
to provide concrete steps for distributing personnel. It simply
proposes to reduce both field staff and headquarters staff
alike, which do not necessarily lead to a more diffuse SBA.
Instead, the agency's personnel structure should be evaluated
and steps taken to ensure that all areas of the country have
access to the SBA resources they need.
As we all know, disagreement in priorities in the agency's
annual budget is not unusual. However, this year I believe that
Chairman Graves and I have a lot in common in our views of the
SBA's budget submission. Put simply, continually spending
taxpayers' money on priorities not approved by Congress is
never a good use of scarce resources.
As we move on with our work, I look forward to working to
refocus the SBA on its core statutory mission of serving small
businesses in a manner that is both efficient and prudent.
Thank you, and I yield back.
Chairman Graves. Does any other member wish to be
recognized for a statement on the views and estimates?
Seeing none, the committee now moves to consideration of
views and estimates. The Clerk will please read the title of
the document.
The Clerk. Views estimates of the Committee on Small
Business----
Chairman Graves. I ask that the views and estimates be
considered as read and open for amendment in its entirety. Does
any member seek recognition for the purpose of offering an
amendment?
Seeing no amendments, the question is on adopting the views
and estimates.
All those in favor, signify by saying aye.
All opposed, no.
In the opinion of the chair, the ayes have it and the views
and estimates is adopted. And I now recognize ranking member
Velaazquez for a motion.
Ms. Velaazquez. Mr. Chairman, I would like to give notice
pursuant to House Rule XI, clause 2(1) that the Committee
Democrats will be filing additional views with the Committee on
the Budget regarding SBA's fiscal year 2015 budget.
Chairman Graves. Without objection, that is so ordered.
And with that, I would ask unanimous consent that the
Committee be authorized to correct punctuation and to make
other necessary grammatical and technical corrections on the
document considered today. And without objection, that is also
so ordered and this committee is now adjourned. Thank you,
everybody, for coming.
[Whereupon, at 1:10 p.m., the meeting was concluded.]
A P P E N D I X
Views and Estimates of the Committee on Small Business on
Matters to be set forth in the Concurrent Resolution on the
Budget for Fiscal Year 2015
Pursuant to clause 4(f) of Rule X of the Rules of the House
and Sec. 301(d) of the Congressional Budget Act of 1974, 2
U.S.C. Sec. 632(d), the Committee on Small Business is
transmitting herein: (1) its views and estimates on all matters
within its jurisdiction or functions to be set forth in the
concurrent resolution on the budget for Fiscal Year 2015; and
(2) recommendations for improved governmental performance.
The budget request for the Small Business Administration
(SBA) in FY 2015 is $864.64 million--a decrease of
approximately $64 million from the levels appropriated for FY
2014. The majority of the decrease (about $47 million) stems
from the reduction in appropriations needed to cover the cost
of the SBA loan programs. There are other minor decreases
spread across other SBA programs. Of these funds, approximately
half are devoted to salaries and expenses.\1\ Total employment
remains constant at 2,136 employees. The SBA also has requested
nearly $39 million in SBA-initiated entrepreneurial development
programs that have not been reviewed or approved by this
Committee and duplicate existing longstanding small business
outreach efforts funded through the agency's appropriation.
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\1\ The salaries and expenses is subdivided further into three
subaccounts: 1) general agency operations; 2) business loan
administrative costs and 3) disaster loan administrative costs.
In the Committee's view, most of the funds for these new
SBA-created outreach efforts should be eliminated while a
modest amount should be reallocated to other areas, including
improvements to the SBA's information technology and the hiring
of additional personnel to assist small businesses in obtaining
federal government contracts. These modest reallocations will
reduce risk to taxpayers without increasing the overall size of
the SBA. Ultimately, the changes recommended will provide
greater assistance to small businesses--the primary generator
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of needed jobs in the economy.
Capital Access Programs
As the economy continues its embryonic recovery, small
businesses will seek funds to expand their businesses. Yet,
small businesses still have difficulty obtaining needed credit
to operate as the hangover from the restrictions on lending due
to the financial crisis remain. Businesses with solid operating
histories have seen their credit lines reduced or eliminated.
The SBA capital access programs provide businesses with
necessary capital and credit to create jobs that the economy
needs.
7(a) Guaranteed Loan Program
The 7(a) Loan Program is the primary program for providing
financial assistance to entrepreneurs. The program utilizes
private lenders who make loans and receive guarantees from the
SBA that a portion (varying from 50 to 85 percent of the loan)
will be repaid by the United States Treasury even if the
borrower defaults. Until FY 2006, Congress appropriated funds
to supplement the fees charged by the SBA in order to cover the
cost of the program as required by the Federal Credit Reform
Act.\2\ From FY 2005 until FY 2010, fees covered the cost of
the program without the need for an appropriation. From FY 2010
to FY 2014, the economic downturn required Congress to
appropriate funds to cover the costs of the 7(a) Loan Program
that were not obtained from fees charged by the SBA and
recoveries on collateral from defaulted loans. The economic
recovery enabled the 7(a) Loan Program to return to a zero
subsidy.
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\2\ Under the Federal Credit Reform Act, the SBA must determine the
costs needed to cover potential losses from the cohort of loans made in
the fiscal year in which the loans were made. Determining the net
present value involves estimating expected loan defaults in the future
less any recoveries of collateral on the defaulted loans. According to
the agency's estimates, defaults are only expected to rise very
modestly; the real issue is the expected recoveries will be lower due
to reductions in the value of collateral.
In fact the 7(a) Loan Program will operate at a negative
subsidy rate, i.e., it will take in more in fees and recoveries
than is necessary to cover the cost of the program. Since these
funds cannot be reallocated to any other SBA account, the
Committee suggests that it would make sense for the SBA to make
minor reductions in the fees charged to borrowers and lenders
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such that the program operates at zero subsidy.
The SBA requests authorization to make $15.65 billion in
loans under the 7(a) Loan Guarantee Program. Given expected
demand and the fact that the program is operating at a negative
subsidy rate, the Committee believes that it would be
appropriate to authorize an increase in the authorized lending
to $16.65 billion. This should prevent the program from a
reaching a limit that might necessitate restrictions in lending
without adding any cost to the federal government from the
increased authorization amount.
The Committee remains strongly concerned about the SBA's
use of its pilot program authority pursuant to Sec. 7(a)(25) of
the Small Business Act. This authority originally was crated to
provide the SBA with some flexibility to meet unexpected needs
of a diverse small business economy. The SBA, however, abuses
this authority by creating programs that last for decades \3\
and frequently add to the overall cost of the 7(a) Loan Program
(through higher defaults). Furthermore, the programs are
created without notice and comment so that neither lenders nor
borrowers provide input that might improve the overall
operations of the pilots. The Committee recommends that no
funds be allocated from the 7(a) Loan Program or any other
account be used to establish any new pilot programs unless the
SBA establishes the program after notice and comment and places
strict limits on the length such programs can operate. In
addition to limitations on funding, the Committee may consider
additional legislative restrictions on this pilot program
authority.
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\3\ For example, the SBA announced that it will extend the
Community Advantage Pilot Program until 2017, SBA, FY 2015
Congressional Budget Justification 76 (2014). The program was created
in 2012 which means that the pilot program (after the most recently
announced extension) will last longer than many government agency
authorizations. Despite this, the SBA calls it a pilot program and
avoids the transparency that would come with notice and comment
rulemaking if the program was not a pilot.
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The Certified Development Company Loan Program
The Certified Development Company (CDC or colloquially the
``504 loan'') program utilizes both private and government-
guaranteed financing to provide long-term financing on larger
capital projects that provide economic development to local
communities. Loans made by CDCs must meet certain public policy
goals (such as assisting manufacturers or promoting economic
development) and demonstrate that the loans will create jobs.
Fees are charged to borrowers and lenders to cover the cost
of the program in order to drive the subsidy rate to zero,
i.e., so that there would be no appropriation needed to cover
the cost of the program under the Federal Credit Reform Act.
Despite the statutory mandate to maintain a zero subsidy,
Congress also limited the size of fees that the SBA could
impose on CDCs and borrowers. As with the 7(a) Loan Program,
economic conditions (particularly lower than expected
recoveries on the value of collateral)\4\ have made it
impossible for the SBA to continue operating the CDC Program
without an appropriation. The SBA requested $45 million dollars
in subsidy to cover $7.5 billion in lending. Given the value
that CDC lending has to small businesses seeking to create
jobs, the Committee believes it would be inappropriate to
reduce the $7.5 billion in an effort to save money. The
Committee does not expect that demand for loans by CDCs will
exceed the requested amounts.
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\4\ Most of the collateral for CDC loans is in commercial real
estate. Although the initial cause of the financial crisis was not
commercial real estate, the ensuing economic downturn has adversely
affected the value of commercial real estate.
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Commercial Refinancing under the CDC Program
As an economic development program that was aimed at
creating jobs, small businesses could not use loans from CDCs
to refinance existing debt. The Small Business Jobs Act of
2010, Pub. L. No. 111-240, created a temporary, two-year
program that authorizes refinancing of existing debt using the
CDC Loan Program. The authority for the program lapsed.
However, the SBA has requested reauthorization of this program
for another year so that CDCs could refinance $7.5 billion in
commercial real estate loans on the basis that the program will
receive sufficient fees to operate at zero subsidy.
In its views and estimates since the enactment of the Small
Business Jobs Act of 2010, the Committee has expressed
significant concerns about the potential future costs to
taxpayers. According to reestimates by the Office of Management
and Budget (OMB), the subsidy rates for the commercial
refinance program are 3.19 percent for loans made in FY 2011
and 1.38 percent for loans made in FY 2012.\5\ Thus, the
Committee's concern about risks to the taxpayer were completely
justified by OMB's own calculations and the Committee has no
assurances that the fees collected under a reauthorized
commercial refinance program would meet the zero-subsidy
requirements given past experience.\6\ As a result, the
Committee cannot, at this time, support the allocation of any
funds or authorization of lending levels for a commercial
refinance program similar to that created in the 2010 Small
Business Jobs Act.
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\5\ OMB, FY 2015 Federal Credit Supplement, Budget of the U.S.
Government 73 (2014) [hereinafter FY 2015 Credit Supplement].
\6\ Unlike investments in the stock market in which brokerages must
claim that past performance is not indicative of future returns, the
Committee's experience with the SBA strongly suggests that past
performance is an accurate predictor of future results.
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Microloans
The Microloan Program is a microfinancing program in which
very small loans are made to very high risk customers, usually
those that would not consider utilizing banks. The SBA makes
loans, at below market rates, to intermediaries who then turn
around and lend to small businesses. Although the default rate
on loans to intermediaries is nearly zero, there is a cost to
subsidize the difference between market interest rates and the
interest rates charged to intermediaries. The SBA requests an
appropriation of $2.5 million to cover lending to
intermediaries of $25 million which represents a reduction of
$2.1 million from FY 2014. Given the cost of the subsidy and
the effectiveness of the program in providing startup funds to
potential entrepreneurs that otherwise would have no access to
debt financing, this modest investment in microfinancing should
continue.
Small Business Lending Intermediary Pilot Program
Under the program, 20 intermediaries will be loaned
$1,000,000 each to make loans of up to $200,000 to small
businesses. The intermediaries will not have to repay these
$1,000,000 loans for a period of two years (either principal or
interest) and then the interest rate is one percent. In short,
this program could wind up making loans to exactly 100
businesses (each intermediary making $200,000 loans to five
businesses). According to the SBA, the purpose of the program
is to alleviate the lack of credit availability to small
businesses. Considering that there are about 28 million small
businesses, this program could be limited to a total of less
than three-ten thousandths of one percent of the small
businesses in the United States. And according to the
President's budget, the subsidy rate for this program is almost
29 percent for loans made in FY 2011 and 23 percent for loans
made in FY 2012.\7\ In contrast, the 7(a) Loan Program has a
negative subsidy rate and provides loans to thousands of
businesses. Thus, the program helps very few businesses at a
high risk to the taxpayer and no funds should be allocated for
it. Again, the Intermediary Lending Pilot Program further
demonstrates the inability of the SBA to control risks
associated with its pilot programs.
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\7\ FY 2015 Credit Supplement, supra note 4, at 51.
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Small Business Investment Company Program
The Small Business Investment Company (SBIC) was instituted
in an effort to ensure that small businesses could obtain
equity as well as debt financing.\8\ Although an
oversimplification, the SBIC program operates by the federal
government guaranteeing an instrument sold by the SBIC to
private investors. The SBIC repays the government from payments
made to it by the companies in which the SBIC invested.
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\8\ The Committee on Small Business held hearings in the 110th
Congress showing that small businesses still have difficulty raising
equity capital. This problem has been compounded by additional burdens
associated with Sarbanes-Oxley compliance and Dodd-Frank requirements.
Nor has the Jumpstart Our Business Startups Act ameliorated these
problems.
The Debenture SBIC program is designed to provide equity
injections to small businesses that have been operational for a
number of years and have a track record of cash-flow and
profits. Debenture SBICs have invested in enterprises such as
Callaway Golf, Outback Steakhouse, Dell Computer, and Nike. The
program is financially sound because the structure of
repayments ensures that the government will not suffer
significant losses.\9\ Thus, no changes are needed to the
program and it operates on a zero subsidy basis without an
appropriation. The SBA budget is fully supportive of this
program and we concur in that recommendation. We also concur
that the program should be provided with an authority level of
$4 billion for FY 2015 (the same level as authorized in FY
2014) is adequate.
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\9\ Without going into detail beyond the scope of this letter, the
debenture SBIC program operates in terms more analogous to the SBA's
7(a) and CDC programs.
The SBA created two new initiatives in FY 2012: 1) an
Impact Fund designed to help economically distressed regions;
and 2) an Early Stage Fund to offer investments to startup
businesses. The Debenture SBIC Program is not well designed to
help startups (which is why Congress created the Participating
Security SBIC Program in 1992). Congress also created a New
Market Venture Capital Company Program to provide investment in
economically distressed regions. Although the Congressionally-
enacted programs have problems, the SBA has never provided any
suggestions on how to ameliorate those problems. Instead, the
agency decided to create the two new programs without specific
authority from Congress, utilize existing debenture SBIC
authority (but potentially diverts it to SBA-selected targets
rather than those of venture capitalists), and duplicate extant
programs. This is typical behavior of the SBA and to prevent
the SBA from modifying a successful investment program, the
Committee strongly recommends that no funds be provided from
any account for the continuation of these programs (the $4
billion should be allocated to any debenture SBIC that files an
adequate application without any precondition or preference to
a specific investment strategy). The Committee on the Budget
also should provide further protection to the existing
debenture SBIC program by requiring any modifications to the
program, whether a pilot program or not, be based on a new
subsidy calculation that ensures the current debenture program
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will operate at zero subsidy without any increase in fees.
The Participating Security SBIC Program became operational
in 1994. The program was designed to provide equity capital to
start-up small businesses--those without a significant
operating history. The program operates under a significantly
different reimbursement regime than that for the debenture
program because the SBICs must wait significantly longer to
obtain returns on their equity investments. There are existing
estimates that the financial portfolio, if liquidated today,
would result in losses to the federal treasury of about $2.4
billion. The program has not provided additional funds to SBICs
in more than nine years and the FY 2015 budget request does not
seek to provide participating security SBICs with additional
funds for investment. The Committee concurs in that
recommendation.\10\
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\10\ The last participating securities were issued to SBICs in
2004. They are to be repaid no later than 10 years after issuance which
means the last of the participating securities will be repaid by
December 31, 2014 after which there will be no more participating
security SBICs unless the SBA decides to begin issuing new licenses.
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Surety Bond Program
Small federal contractors, particularly in the construction
industry, are required to post bonds in order to protect the
federal government against the failure to complete a project.
Title IV of the Small Business Investment Act of 1958
authorizes the SBA to reimburse surety bond writers between 70
and 90 percent of the losses if a small business contractor
defaults on a contract to which a surety issued a bond. The
program operates on a revolving fund account and sufficient
funds exist in the program so that no appropriation is needed.
The Committee concurs that the program should not require any
appropriated funds to cover the costs of defaults by
contractors.
Disaster Loans
The SBA is the primary provider of assistance to the
homeowners and small businesses after a natural disaster. The
SBA does not request any additional funds needed to subsidize
the cost of disaster loans in FY 2015 because the agency has
sufficient carryover funds from those appropriated in response
to Superstorm Sandy. Therefore, the Committee concurs with the
SBA request to provide no additional monies for the revolving
disaster loan account.
Management of Capital Access Programs
There are three primary costs that the SBA must face in the
management of its capital access programs: (1) personnel to
oversee the programs; (2) computer technology necessary to
process data; and (3) capabilities to address defaulted loans.
In all three instances, the SBA severely misplaces its
priorities in the FY 2015 budget request.
The administrative costs associated with the guaranteed
loan programs are covered under an appropriation account
separate from the rest of the SBA. The FY 2015 request reduces
that account by $3.8 million. The Committee concurs that those
savings are reasonable and any additional cuts might jeopardize
the ability of the SBA to properly manage a loan portfolio that
exceeds $100 billion. The Committee on the Budget should
allocate the reductions in a manner that ensures full funding
of the SBA's lender oversight function and its simplification
of standard operating procedures that govern the lending
programs.\11\
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\11\ The Committee continues to investigate the problems associated
with the SBA's management of its lending program through ad hoc
standard operating procedures rather than through the more transparent
process of creating rules after notice and comment rulemaking.
The administrative costs for operating \12\ the disaster
loan program also are budgeted under a separate account. In
addition, Congress permanently authorized the SBA to transfer
unused disaster lending funds to administration of the disaster
loan program. For FY 2015, the SBA requests $187 million which
represents a reduction of about $5 million from FY 2014. The
Committee believes that this should be sufficient to fund the
administration of the disaster program. Any reductions would
inhibit the agency's ability to provide sufficient personnel
and information technology needed for disaster response,
particularly a major disaster on the scale of a Hurricane
Katrina or Superstorm Sandy.\13\
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\12\ The administrative costs for this program are not simply those
associated with the issuance of disaster loans. Since this is the only
direct lending program that the SBA operates, the agency also must
service all of these loans until they are sold. In 2008, Congress
prohibited the sale of disaster loans for a period of five years after
the loans were issued.
\13\ As the Committee discovered, mobilizing such resources on an
ad hoc basis after Hurricane Katrina presents significant logistical
problems inhibiting the ability of the SBA to distribute assistance so
that communities can rebuild.
The information technology needed to manage the SBA
guaranteed loan portfolio is outdated and at significant risk.
In particular, the agency still has not complied with a
statutory mandate to have a robust modern loan management
accounting system (LMAS) even though Congress directed the SBA
to have it operational by 1997. The only mention of the LMAS in
its budget justification is that it completed a quality
assurance review on investments and projects associated that
project. Despite having promised this Committee to have
migrated the system off of a proprietary, COBOL-based system by
January 1, 2012, the agency still has not done the migration.
In fact, the agency is just now beta-testing the ``new'' COBOL
\14\ code. In allocating funds, the Committee strongly endorses
an approach that transfers funds from other projects of the
Chief Information Officer to modernization of the LMAS.
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\14\ Use of the term ``new'' in reference to COBOL seems somewhat
anachronistic given the fact that COBOL was invented in 1960. C. Brown,
D. DeHayes, J. Hoffer & W. Perkins, Managing Information Technology 44
(7th ed. 2012). COBOL is not used in any extensive way by the SBA's
lending partners and those that still use it are migrating to newer
mainframe languages using newer UNIX-based operating systems.
As already noted, collections on defaulted loans,
particularly in the CDC Loan Program, are abysmal. The agency
obtains about 23 cents on the dollar in recoveries on defaulted
loans made by CDCs. If the rate of recoveries on CDC loans were
doubled (hitting that of loans made in the 7(a) Loan Program),
it probably would eliminate the need for any subsidy. CDCs have
a vested interest in maximizing their recoveries because that
will in the long-run reduce fees that they are required to pay
for the operation of the program. Thus, the Committee strongly
endorses eliminating SBA's responsibility for managing defaults
and transferring it to CDC. This would result in a concomitant
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reduction in SBA personnel.
Entrepreneurial Development Programs
Almost a quarter of the SBA's budget is devoted to
providing outreach and technical assistance to small
businesses. This is done through a panoply of programs that the
SBA operates at the specific direction of Congress. In
addition, the SBA also creates, using its general authority to
aid small businesses, a number of agency-created initiatives
that duplicate those that Congress specifically directed the
agency to implement. These SBA-initiated outreach efforts
represent nearly 20 percent of the overall entrepreneurial
development budget. The Committee believes that the SBA request
for funding of the agency's initiated training programs should
be eliminated except for a modest $3 million dollars that
should be reallocated to hiring additional personnel to assist
small businesses in obtaining government contracts and
implementing a variety of changes to SBA contracting programs
mandated by Congress in the 111th and 112th Congresses that
have Native American Affairs and International Trade should be
terminated. The services, to the extent that they provide any
utility at all, can be better performed by the Department of
the Interior's Bureau of Indian Affairs and the Department of
Commerce respectively. The Committee also believes that the
Veterans Business Centers would obtain significantly greater
funding and have access to more veterans if they were
transferred to the Department of Veterans Affairs. The
Committee expects that approximately $47 million would be saved
through its recommended deletions to the agency's
entrepreneurial development programs.
Small Business Development Centers
Small Business Development Centers deliver their services
through 63 cooperative agreements with either state agencies or
institutions of higher education. To the extent that a state
agency is a grantee, the agency typically subcontracts that
performance to an institution of higher education located in
the state. These 63 grantees have established over 1,000
service centers to provide technical assistance to small
businesses for: business strategy development, technology
transfer, government procurement, engineering, accounting, etc.
The FY 2015 budget request for SBDC's is $113.625 million which
is identical to the amount enacted for FY 2014. The Committee
believes that this request underestimates the services and
utility of the SBDC Program and strongly recommends that an
additional $2 million be allocated to this program through with
the funds that would be eliminated from the elimination of the
Office of Native American Affairs at the SBA.
SCORE
SCORE provides face-to-face counseling from 389 chapter
locations with 10,900 SCORE volunteers. SCORE volunteers
provide the full gamut of business consultation services from
development of business plans to strategic marketing to
financing. SBA's SCORE database also enables small businesses
to find a SCORE volunteer that best suits the need for the
small business. For example, the owner of a restaurant can find
SCORE volunteers who were in the food service business. The
Committee concurs with the budget request of $7 million. As
with the request for SBDCs, should the SBA-created initiatives
impose new outreach efforts on SCORE volunteers, those should
be met with a concomitant increase in funds for SCORE.
7(j) Technical Assistance
Section 7(j) of the Small Business Act authorizes the
Administrator to contract for the provision of management,
technical, and consulting services to participants in the 8(a)
government contracting business development program. Unlike
other assistance programs in which any interested individual
may obtain an appointment and seek advice, this program is
limited solely to participants in the 8(a) program. While the
assistance is useful for participants, the Committee believes
that these services can be provided, in part, by other
entrepreneurial development partners and personnel at the
agency. Given the current fiscal condition of the United
States, the Committee recommends reducing that the budget for
this program remain at the FY 2014 enacted level of $2.79
million rather than the requested $2.8 million.
Microloan Technical Assistance
The keystone of the Microloan Program is not the lending
that is done by intermediaries but rather than training that
they provide to their borrowers so that the borrowers can
operate their business without defaulting on loans. The
Committee believes that this is a valuable and irreplaceable
component of the microloan program--assisting a new class of
entrepreneurs. However, testimony before the Committee reveals
that a majority of training provided by microloan
intermediaries is not to borrowers but to prospective
borrowers, many of whom do not become borrowers. This function
can be provided by other programs at the SBA and elsewhere. As
a result, the Committee recommends that microloan technical
assistance be reduced to the level appropriated in FY 2013 of
$19.985 million.
National Women's Business Council
The National Women's Business Council is a bipartisan
federal advisory council created to serve as an independent
source of advice and counsel to the President, Congress, and
the SBA on economic issues of importance to women business
owners. By interacting with women throughout the country, the
Council develops and promotes policies and programs to help
women entrepreneurs, the largest growing class of small
business owners in the country. The Committee concurs that this
mission is valuable but is at a loss to understand the
necessity for an increase in its budget from the enacted in FY
2013. As a result, the Committee recommends that the budget be
reduced to $736,000 from the FY 2014 appropriated budget of $1
million.
Women's Business Centers
Women's Business Centers (WBCs) provide training,
counseling, and mentoring to women entrepreneurs. WBCs are
public/private partnerships in which the federal government
provides funds that were to be matched by private donors.
However, over time, the centers became more reliant on federal
funds thereby undermining the original intent of Congress in
creating the WBCs. Furthermore, many of the clients are not
women but men. The services provided by WBCs fundamentally are
indistinguishable from that provided by SCORE and SBDCs. Given
the duplication in mission and the fact that WBCs were not
created to obtain permanent federal funding, the program should
be terminated. If funds are provided, a significant portion of
the FY 2015 request of $14 million should be allocated to new
centers rather than funding existing centers that should have
obtained funds from the private sector.\15\
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\15\ The original argument for creating the sustainability aspect
of the WBC Program was that the centers were having difficulty raising
private sector funds when the Internet bubble burst. However, given the
recent gains in the stock market (the Dow Jones average has more than
doubled since March of 2009), http://research.stlouisfed.org/fred2/
series/DJIA, existing WBCs should have less difficulty in raising money
from the private sector. This would ensure that the program operates as
Congress originally intended when it created the WBCs.
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Veterans Business Outreach Centers
Veterans Business Outreach Centers (VBOCs) are modeled on
SBDCs and WBCs. The SBA already provides significant assistance
to veterans who are seeking to start or already operate small
businesses through SBDCs, SCORE, and WBCs. The VBOCs, are
according to the SBA, underfunded. Given the fact that the
resources available to the Department of Veterans Affairs far
exceeds those available to the SBA,\16\ it makes sense that the
VBOCs be transferred to that Department. Should the VBOCs
remain with the SBA, they should receive an increase in funding
coming out of the funds for the SBA-created Boots-to-Business
Program.
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\16\ The Department of Veterans Affairs entrepreneurial outreach
activities are funded through fees obtained from the Department's
operation of multiple award contracts utilized by other agencies. Those
fees bring in an estimated $2 billion annually, see OMB, Budget of the
U.S. Government FY 2015 Appendix 1130 (2014), or more than 2.5 times
the size of the entire SBA budget. It cannot be gainsaid that the
Department has significantly greater resources to reach entrepreneurs
than the SBA.
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Prime Technical Assistance
Under the Program for Investment in Microentrepreneurs
(PRIME), the SBA provides federal funds to community-based,
regional, and national organizations that in turn will offer
training and technical assistance to low-income and very low-
income entrepreneurs with small businesses of five employees or
less. The major focus of PRIME is to provide assistance to very
small businesses that typically, because of their lack of
experience and education, are unable to gain access to banks
and other providers of capital. The services provided by PRIME
duplicate other services and the Committee concurs with the SBA
FY 2015 budget request to eliminate funding.
HUBZone Program
The basic purpose of the HUBZone Program is to direct
federal contracts to small businesses in distressed urban and
rural areas to promote economic development of these areas.
Contracting officers are authorized to set aside contracts for
competition among eligible HUBZone small businesses, sole
source, or use bid preferences when large firms and HUBZone
small businesses are in competition. HUBZones are distressed
urban and rural areas characterized by chronic high
unemployment or low household income or a combination of both.
Investigations by GAO revealed vulnerabilities in the
program, especially related to self-certification. Funds
related to correcting these problems and improving the
operation of the HUBZone program are discussed elsewhere in
this document. The FY 2015 budget requests $2 million for the
HUBZone program but does not explain how those funds will be
utilized. To the extent they are used to certify firm
eligibility, the Committee believes that it represents a sound
use of taxpayer resources. However, to the extent such funds
are used to perform outreach (however poorly defined that
effort is in the SBA budget), then all such funds should be
eliminated or transferred to oversight of the HUBZone Program
including use in certification of firms.
Office of Native American Affairs
The Office of Native American Affairs assists American
Indians, Alaska Natives, and Native Hawaiians seeking to
create, develop and expand small businesses. The SBA is
requesting $2 million for FY 2015 (the sane as in FY 2014). The
services provided by this Office can be provided by other SBA
programs. More significantly, there is an entire subagency at
the Department of Interior--the Bureau of Indian Affairs--that
has far greater resources to perform outreach to Native
American small businesses.\17\ As a result, the Committee urges
that the funds for this Office at the SBA be terminated.
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\17\ The Bureau of Indian Affairs has 5,900 employees and a budget
of approximately $2.7 billion. Id. at 692-93. This dwarfs the size and
financial resources of the SBA.
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Office of International Trade
According to the SBA, the Office of International Trade
enhances the ability of small businesses to compete in the
global marketplace. The Small Business Jobs Act of 2010
overhauled the operation of this office by, among other things:
1) appropriating $30 million for a state trade and export
promotion pilot program (STEP Program); 2) increasing SBA
employees located at the Department of Commerce Export
Assistance Centers; and 3) adding 10 regional export
development officers in the SBA's regional offices.
Although the SBA requested no further funds or authorities
for the STEP program, the Congress reauthorized the program for
one more year and appropriated $8 million for the program. The
Committee has never supported the program and concurs with the
budget request to eliminate the funding that was provided in
the appropriations bill for FY 2014.
The rationale for increasing SBA personnel at these Export
Assistance Centers also is wanting. Essentially, the argument
goes that Commerce Department personnel would be incapable of
helping small businesses or explaining various financing
programs to these small businesses. The Committee rejects that
contention. Commerce Department personnel, with some minor
additional training, should be able to handle advice to small
businesses. As a result, the government would save about $12
million which is the administrative cost of operating the
Office of International Trade.\18\
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\18\ The SBA's FY 2015 Budget Justification does not provide a
budget request specifically for the Office of International Trade as
its budget is subsumed in other accounts (such as salaries and
expenses). Nevertheless, the SBA estimates that the administrative
costs of providing assistance to small business importers and exporters
is roughly $12 million. See SBA, FY 2015 Congressional Budget
Justification 56 (2014).
No rationale exists to assign regional trade finance
specialists to SBA regional offices. Small businesses access
SBA services through direct offices. Placing personnel in
regional offices ensures that they are unlikely to come in
close contact with small businesses. Furthermore, appropriate
training should provide existing district office personnel with
sufficient expertise to understand the various options for
international trade finance. As a result, the Committee
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recommends that funding for these individuals be eliminated.
The Committee certainly understands the importance of
international trade to small businesses. However, the taxpayer
would save about $20 million by the elimination of the STEP
Program and Office of International Trade without undermining
their ability to obtain necessary information to enter the
import or export markets.
SBA-created Entrepreneurial Outreach Initiatives
The SBA requested $39 million dollars for five outreach
programs that it created under its general powers to help small
businesses: Boots to Business; Entrepreneurship Education;
Growth Accelerators; Regional Innovation Clusters; and
contributions to BusinessUSA.gov.\19\ The Committee does not
believe that a detailed explication of these initiatives are
necessary as they have amorphous goals and duplicate already
extant outreach efforts that are known throughout the small
business community. Therefore, the Committee endorses
eliminating all funding for these efforts and reallocating $3
million to the SBA government contracting programs and
increased oversight by the Inspector General.
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\19\ Technically, BusinessUSA.gov is not a program of the SBA but
rather a collaborative effort of all federal agencies to provide
information of use to small businesses. The information provided by
that website is inaccurate and duplicates website efforts at other
federal agencies, including that of the SBA's (which itself is not a
picture of clarity and intuitive use).
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Government Contracting Programs
One of the primary missions of the SBA is to ensure that
small businesses receive a ``fair proportion of the total
purchases and contracts for property and services for the
Government in each industry category....'' 15 U.S.C.
Sec. 644(a). To achieve this objective, Congress created a
number of programs designed to increase opportunities for small
businesses. The SBA does not make a specific request for funds
to operate to the government contracting program; rather those
expenses are subsumed in the overall salaries and expenses for
the agency. Nevertheless, the agency provides an estimate of
the total cost for operating these programs at $102 million or
roughly a $1 million increase from FY 2014.\20\ The Committee
believes that the SBA undervalues the importance of its mission
to ensure that small businesses have a fair shot at winning
government contracts and resources should be reallocated to
help small businesses enter and succeed in the federal
government marketplace.
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\20\ SBA, FY 2015 Congressional Budget Justification 26, Table 10
(2014).
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PCRs and CMRs
The SBA has two types of individuals devoted to ensuring
that small businesses have maximum opportunities to provide
goods and services to the federal government. They are
procurement center representatives (PCRs) and commercial
marketing representatives (CMRs).\21\
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\21\ The Federal Acquisition Regulation actually describes three
types of SBA personnel--PCRs, CMRs, and breakout PCRs. That last
category was eliminated from the Small Business Act but the Federal
Acquisition Regulation has not yet been updated.
PCRs generally are assigned to contracting activities and
work under the supervision of the contracting activity
personnel (but report to the Office of Government Contracting
at the SBA). They are supposed to: (1) review proposed
acquisitions to recommend procurements for setting aside to
small businesses or specific categories of small businesses;
(2) advise contracting officers whether the acquisition
strategy will prevent small businesses from competing; (3)
suggest alternative contracting methodologies designed to
increase the probability that small businesses will be able to
compete for various procurements; (4) recommend small
businesses that should be contracted about procurement
solicitations; (5) appeal a contracting officer's failure to
solicit from small businesses after identification of
responsible small business bidders PCR or other sources; (6)
review contracting activity compliance with small business
contracting requirements of federal laws and federal
regulations; (7) participate in conferences designed to
increase small business utilization in federal procurement; (8)
advocate for the use of full and open competition when that
strategy will benefit small businesses; and (9) determine
whether a contract is improperly bundled, i.e., some or all of
the contracted goods or services could be provided by small
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businesses if the contract was not bundled.
CMRs promote the use of small businesses by prime federal
contractors required to submit subcontracting plans, i.e.,
businesses other than small. They review compliance with
federal subcontracting plans. In addition, they perform market
outreach to match small businesses and large prime federal
contractors. Frequently, CMRs often perform other functions in
addition to their efforts to find subcontracting opportunities.
PCRs and CMRs play a vital role in helping small businesses
obtain federal procurement opportunities. The number of such
individuals at the SBA is well short of their need. PCRs
require significant procurement knowledge. The functions of a
CMR require also a solid foundation in the federal procurement
process and is clearly a full, not part-time, position.
While in other years, the SBA has called for the hiring of
additional PCRs, the FY 2015 budget is silent on this matter.
The Committee has had significant bipartisan support for the
hiring of additional PCRs and CMRs. Of the $3 million in
savings from the SBA's contribution to BusinessUSA.gov, about
$1 million should be allocated to hiring new PCRs and CMRs.
This reallocation will provide a significant benefit to small
businesses and the taxpayer as it will help ensure robust small
business competition when the government buys goods and
services.
Completion of Congressionally-Mandated SBA
Contracting Regulatory Changes
In the last two years, Congress has made a number of
changes to the government contracting programs overseen by the
SBA. These changes require the agency to take the following
actions: issue new guidelines for agency small business
contracting; file a report on why agencies have not met their
contracting goals (an annual requirement); promulgate
regulations to improve the mentor-proteegee program;\22\ issue
rules to permit more teaming arrangements through modification
of subcontracting limitations; adjust its databases to identify
large businesses misclassified as small; establish a website
for large businesses to post subcontracting opportunities for
small businesses; promulgate regulations creating a safe harbor
for small businesses who make a good faith effort to comply
with the complex agency size-standard rules; publish a plain
English guide for small businesses on how to comply with the
agency's size standard rules; issue regulations on its
authority to suspend or debar (temporarily or permanently
prohibit a business from obtaining government contracts); and
issue a SOP on how the agency will conduct suspension and
debarment proceedings. The SBA has not completed any of these
enumerated tasks and some are more than a year overdue. Despite
this, the SBA makes no mention of these items in its budget
justification or requests additional sums to complete these
changes to their contracting programs.
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\22\ Under mentor-proteegg program, small businesses may team with
a large business mentor in order to obtain a specific government
contract without running afoul of affiliation rules that would
otherwise deem the small business as large in the absence of a mentor-
proteegee relationship. 13 C.F.R. Sec. Sec. 121.103(h)(3)(iii),
124.520.
In contradistinction, the SBA determined that it was
necessary to create new entrepreneurial programs (not
specifically required by Congress) spending $36 million of
taxpayers' money. The SBA simply gets it wrong and its first
priorities should be those created by Congress not duplicative
initiatives created out of whole cloth by SBA employees. As a
result, the Committee strongly recommends that no funds be
allocated to the SBA-created entrepreneurial development
initiatives. Further, of the $3 million dollars eliminated from
contributions to the BusinessUSA.gov website, $1 million should
be allocated to the implementation of changes to SBA's
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government contracting programs as mandated by Congress.
Vulnerabilities in SBA Contracting Programs
There are five major programs developed by Congress to
promote small business contracting opportunities. The Small
Business Reserve Program requires that contracts of value
between $3,000 and $150,000 be set aside only for competition
among small businesses if at least two small businesses can
perform the contract at a fair market price. The other programs
are targeted at specific classes of small businesses are: 89a)
businesses; HUBZone businesses; service-disabled veteran-owned
businesses; and women-owned businesses. The programs also
enable contracting officers to limit competition to businesses
within a specific category and in all cases, except small
businesses owned by women, to award contracts on a sole source
basis, i.e., without competition at all. If a contract is
awarded through one of these programs, the small business
awardee is required to perform the majority of the work.\23\
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\23\ This prohibits small firms from acting as fronts for large
businesses. The first line of defense against this type of fraud is the
agency's contracting officer and the contracting officer technical
representative (the individuals who handle post-contract award) not the
SBA.
These contracting programs present a number of
vulnerabilities: (1) small businesses might misrepresent their
size (and not actually be small); (2) small businesses may
misrepresent their status for purposes of eligibility such as
not being a woman-owned and controlled business; or (3) small
businesses do not perform the necessary quantum of work on the
contract. Given these vulnerabilities, there are key defenses--
adequate personnel to check the small businesses and updated
databases for use by contractors and federal contracting
officers. The Committee believes that the SBA has sufficient
resources, as reflected in the FY 2015 budget request, for
operation of the specific small business programs.\24\
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\24\ Reductions in spending on this program could be
counterproductive because it could lead to an increase in fraud or
other abuse of these contracting programs thereby denying legitimate
small businesses of valuable opportunities.
The issue is not the availability of resources but proper
management and oversight within the agency; no amount of funds
can ensure that agency leadership will place a proper focus on
these government contracting programs. However, the elimination
of duplicative entrepreneurial development efforts could free
up agency management to focus on its government contracting
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programs.
Agency Structure
The SBA, unlike most federal agencies, provides services in
a variety of locations rather than through its headquarters
operations or through one of ten regional offices. The SBA has
68 district offices at which small business owners obtain
advice, seek information, and work with SBA employees to obtain
government contracts. In addition, district offices also
provide office space for the outreach efforts conducted by
SCORE counselors. In addition to these district offices, the
SBA has a loan processing center outside of Sacramento, CA, a
national office that oversees the purchase of loan guarantees
and the liquidation of defaulted loans in Herndon, VA, six
area-wide offices to handle disputes about a business size in
the government contracting realm, two offices (in Buffalo, NY
and Forth Worth, TX) for disaster response, and a national
finance office in Denver, CO which also hosts much of the SBA's
internal contracting function. Given this decentralized
structure, it is relevant to consider whether the agency has
properly allocated resources among its various offices.
Personnel in the 10 Federal Regions
As already noted, the SBA delivers services to small
business owners through a panoply of offices. While some
functions are overseen by program offices,\25\ most of these
operations are managed by an Office of Field Operations at
SBA's Washington, DC headquarters.
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\25\ For example, the Sacramento Loan Processing Center is managed
by the Office of Capital Access at SBA's Washington, DC headquarters.
In addition to the district offices and services provided
at various locations throughout the country, the SBA also has
employees in each of the ten federal regions. These federal
regions have regional administrators, regional communication
officials, and concomitant support staff. Despite this robust
presence in the federal regional offices, most of the SBA's
functions carried out in the field are managed, not in these
regional offices, but rather at SBA headquarters. As a result,
the Committee believes that regional offices of the SBA can be
eliminated without any diminution of effective agency
management. The Committee recommends that no funds be allocated
for the operation of its ten regional offices and those funds
can be reallocated to more vital needs such as improvements in
the agency's information technology and hiring additional PCRs
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and CMRs.
Another office at the SBA with ten regional representatives
is the Office of the Chief Counsel for Advocacy. The primary
responsibility of that office is to monitor agency compliance
with the Regulatory Flexibility Act, a statute mandating
agencies examine the impact of their proposed and final rules
on small businesses. While input from small businesses is quite
useful in performing that role, the office does not need
regional representatives to obtain that input. As a result, the
Committee believes that the Office of the Chief Counsel's
regional personnel should be eliminated. However, rather than
simply eliminate all ten positions from the Office of the Chief
Counsel for Advocacy, the Committee recommends that five
additional positions be created to review federal agency
compliance with the Regulatory Flexibility Act. This would
result in a net savings of five individuals in the office while
boosting its capability to fight burdensome regulations
inhibiting the ability of small businesses to create jobs.
District Personnel
As already noted, the SBA's primary contact with small
businesses is through its district offices. The district
offices are, logically enough, headed by a district director.
However, in about 75 percent of the offices, there also is a
deputy district director. The Committee is of the opinion that
district offices do not need a separate, dedicated individual
to be the deputy. If the district director is unavailable (due
to vacation or illness), that person simply can appoint someone
to act temporarily as the district director. The Committee
strongly recommends that no monies be allocated to pay for
individuals whose sole job is to act as a deputy district
director. Instead, deputy district directors should be
reassigned to other functions at the agencies that provide
direct assistance to small businesses.
Executive Direction
The budget for executive director, a conglomeration of
various offices at the SBA that is not clearly defined has
steadily increased since FY 2009. Although there has been a
leveling out of the increase, the FY 2015 budget request is for
$19.5 million--a reduction of a mere $25,000. The agency's
inability to control its spiraling top-heavy management
structure demonstrates a failure to understand its priorities
and mission.
Even more troubling is the fact that no explanation exists
for the use of these funds. According to the agency cost
allocations, the SBA has identified roughly $8 million in funds
specifically for executive direction--Women's Business Council,
Ombudsman, and contributions to BusinessUSA.gov website. That
leaves $11 million unspecified; presumably some of it is
allocated to functions such as the Office of Legislative
Affairs and the operation of the Administrator's office but it
is impossible to ascertain what monies are allocated to what
functions in the SBA budget. As a result, the Committee is
concerned that these funds will be used for projects of the
Administrator's interest rather than functions directed by
Congress. The Committee strongly urges that budget submissions
by federal agencies provide more granular detail so that the
Committee can provide a m ore accurate assessment to the
Committee on the Budget on the propriety of an agency's
budgetary allocations.
Headquarters Structure
According to the agency, there about 600 people at SBA
headquarters leaving approximately 1,600 people to interact
with small businesses in their field operations. Given the fact
that there are about 28 million small businesses in the United
States, the Committee finds that the agency structure is too
concentrated at headquarters in Washington, DC. This includes a
personal office of the Administrator that is the same size as
that of the Secretaries of Defense or Agriculture,\26\ and a
Chief Operating Officer separate from the Deputy Administrator
\27\ even though the Department of Energy seems to survive with
a Deputy Secretary also functioning as the Chief Operating
Officer.\28\
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\26\ Secretary Vilsack and Secretary Gates are able to manage much
larger agencies (Department of Agriculture and Defense respectively)
with only 13 individuals in each of their personal offices.
\27\ In testimony to the Committee on March 2, 2011, the
Administrator claimed that the position of the Chief Operating Officer
was terminated and the Deputy Administrator would act as the Chief
Operating Officer. However, the SBA's FY 2015 Budget Justification
shows an organizational chart with a Deputy Administrator, a Chief of
Staff, and a Chief Operating Officer. SBA, FY 2015 Congressional Budget
Justification 29 (2014).
\28\ The Department of Energy has roughly 16,000 employees, 90,000
contractor employees and a FY 2015 budget request of $27.9 billion.
OMB, FY 2015 Budget of the U.S. Government 73 (2014).
Nothing in the SBA budget suggests that the Administrator
plans to reduce the Office of the Administrator; the
recommended budget cuts could from employees that directly
serve small businesses. This is unacceptable to the Committee
and it recommends a 10 percent reduction in funds for the
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Office of the Administrator.
Inspector General
The SBA manages a loan portfolio in excess of $100 billion.
It also deals with thousands of small business federal
government contractors. As has already been noted in this
document, there are significant vulnerabilities in the SBA's
operations--vulnerabilities that place the taxpayer at risk and
undermine the integrity of the federal procurement process. As
the first line of defense against waste, fraud and abuse, the
Office of the Inspector General plays a vital role in
uncovering significant criminal, civil, and management problems
at the SBA. The Committee strongly recommends $1 million in
savings from the BusinessUSA.gov website contribution and $1
million in savings elsewhere provided in this document be
transferred to the Inspector General to ensure that office has
sufficient resources to root out fraud, abuse, and waste.
The Office of the Chief Counsel for Advocacy
The Office of the Chief Counsel for Advocacy was created in
1976. Its primary mission is to represent the interests of
small businesses in federal agency regulatory proceedings. The
Office accomplishes this primarily through its oversight of
agency compliance with the Regulatory Flexibility Act
(RFA).\29\ The primary costs of the Office of the Chief Counsel
for Advocacy are salaries for 46 employees and funds to conduct
economic research. As already noted, the Committee believes
that the regional advocate positions should be eliminated and
some of their positions transferred to the Washington, DC
headquarters to work on oversight of agency compliance with the
RFA. In addition, the Committee believes that the economic
research activities of the Office should be targeted to
analysis of agency rulemakings rather than the broader research
currently conducted by the Office. With the aforementioned
caveats, the Committee concurs with the FY 2015 Budget Request
of $8.46 million.
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\29\ The RFA requires federal agencies to consider the impacts of
their proposed and final rules on small entities, including small
businesses, and if those impacts are significant on a substantial
number of such entities, develop alternatives that reduce such
consequences without undermining the objectives sought to be achieved
by the agency.
[all]